CHICAGO - A Michigan board Wednesday voted to approve two emergency loans to cash-strapped Detroit suburbs for pension obligations.
The Michigan emergency loan board agreed to loan Allen Park $2.6 million, which the city will use for a payment into its pension fund.
The state also voted to give a $3 million loan to Highland Park, a struggling city bordered by Detroit on all sides. The city will use the money to help settle a long dispute over $27 million of bonds issued in 2008 to cover unfunded pension obligations.
Both cities are under state control.
Allen Park's financial woes are due in part to $31 million of bonds issued for a failed film studio project. The once-affluent city began struggling with falling property taxes and other problems, which were exacerbated in 2009 when it floated the general obligation bonds to finance the large film studio, which never came to fruition.
The $2.6 million loan will mature in 10 years, with an initial interest rate of 2.3%, though that may be adjusted in the future, according to loan board documents. As a condition of the loan, the state is requiring the city to hire an administrator to oversee city operations. Officials also have to send quarterly reports to the treasurer outlining revenues and expenditures and updates to a five-year deficit elimination plan.
The state's $3 million loan to Highland Park is in addition to "two or more" emergency loans that the city is already behind on, according to the state.
The new loan will mature in 25 years, with a 2.45% interest rate.
Proceeds will be used as part of a settlement with Fifth Third Bank, which provided a letter of credit on $27 million of bonds issued in 2008. The city used bond proceeds to make payments on its unfunded pension obligation, though it has since fallen behind on pension payments.
The current Fifth Third letter of credit was set to expire on Sept. 15, 2014, and the city, state and bank reached a settlement before the expiration. Details of the settlement were not clear as of press time.
The state first declared a financial emergency in the city in 2001, before lifting it in 2011. Gov. Rick Snyder declared a new emergency in January 2014.
The Highland Park School District is also under emergency management.
The city also owes the Detroit Water and Sewer Department $18.5 million for unpaid bills.